PDT LBO of THETA CHI

Deal Overview
• Buyer: Phi Delta Theta
• Target: Theta Chi’s house
• Transaction Type: Leveraged Buyout (LBO)
• Rationale: Strategic acquisition to expand Phi Delta Theta’s presence, control prime real estate, and potentially grow membership.

1. Purchase Price Assumptions
• Theta Chi’s House Estimated Value: $2.5 million (assumed for now, but actual appraisal is needed)
• Acquisition Price: $2.3 million (negotiated below market value)
• Closing Costs & Renovation Budget: $200,000
• Total Funding Required: $2.5 million

2. Financing Structure

An LBO relies on a mix of debt and equity to finance the deal. Here’s how it could be structured:

Debt Financing (75% of Total Capital) - $1.875 million
• Bank Loan: $1.25 million (senior secured loan at 7% interest, 10-year term)
• Seller Financing: $500,000 (Theta Chi carries a note at 5%, balloon payment in 5 years)
• Private Loan from Alumni Fund: $125,000 (5-year loan, 6% interest)

Equity Financing (25% of Total Capital) - $625,000
• Phi Delta Theta Housing Corporation Contribution: $300,000
• Capital Raised from Alumni: $250,000
• Undergraduate Chapter Fundraising: $75,000

3. Cash Flow & Debt Paydown Strategy
• Revenue:
• Room & Board from members: $250,000/year
• Social event rentals or leasing extra space: $50,000/year
• Total Revenue: $300,000/year
• Expenses:
• Mortgage Payments: $190,000/year
• Property Taxes & Maintenance: $50,000/year
• Utilities & Insurance: $30,000/year
• Total Expenses: $270,000/year
• Net Operating Cash Flow: $30,000/year (used to pay down debt faster)
• Exit Strategy:
• After 5 years, refinance the debt using property appreciation (house value likely grows to $3 million+)
• Theta Chi’s balloon payment is paid off using refinanced mortgage
• Long-term goal: Full ownership with no debt burden by year 10

4. Key Risks & Mitigations
• Risk: Low occupancy or declining membership → Mitigation: Strong recruiting & alumni backing
• Risk: Interest rates rise → Mitigation: Lock in fixed-rate loans where possible
• Risk: Theta Chi fights the deal → Mitigation: Negotiate an off-market sale before others bid